Scots energy minister touts possibility of exploration incentives

Offshore drilling
Offshore drilling

Scottish and UK ministers could join forces to create incentives for stimulating North Sea exploration.

Paul Wheelhouse, Scotland’s energy minister, said yesterday that Holyrood was “broadly” supportive of the UK Government’s current fiscal regime for oil and gas.

Westminster’s recent introduction of transferable tax history should help get the right assets in the right hands, Mr Wheelhouse said at the Scottish Affairs Committee inquiry into the future of oil and gas.

But he said the UK would need more discoveries and new fields coming on stream to ensure a degree of self-sufficiency as its gets to grips with the global energy transition.

Exploration and appraisal drilling has been in decline for a long time, reaching all-time lows in 2016 and 2017.

However, oil and gas demand in the UK and Scotland is still high, particularly in heating and transport, he said, adding that “switching off” hydrocarbon production overnight would cause chaos.

He said the oil industry was not an “opponent” of the push to lower carbon emissions, as the sector’s skills can be redeployed for renewables projects.

Furthermore, increasing production in the UK could have a positive impact on emissions, Mr Wheelhouse said.

An alternative would be importing more from regions where production is not as efficient or regulated.

And without oil production, some income needed for projects like carbon capture and storage would be lost, he added.

Norway encourages drilling in its waters by providing operators with a 78% rebate on exploration costs.

Mr Wheelhouse suggested London and Edinburgh could seek new ways of getting companies drilling in greater numbers again.

He said: “The one area that perhaps we would welcome further work in, and I appreciate it’s not as easy as it may sound, but we need to work together to try to find a solution to this, is to look for new incentives to stimulate exploration activity, which has taken a big hit.

“It is starting to pick up certainly, but to ensure we have self-sufficiency in oil and gas production during the low carbon transition, we need to maintain our levels of investment in exploration to ensure that in the 2020s we have new fields entering production.”

Responsibility for oil and gas policy-making is not devolved, and rests with the UK Government.

Mr Wheelhouse also said workforce engagement needed to be addressed in the North Sea to limit damage to the basin’s attractiveness to investors.

Industrial action – some of it officially authorised, some of it not – has taken place this year in the region.

The minister said: “One of the key challenges that the Oil and Gas Authority and industry in general need to face up to is trying to improve workforce engagement and make sure that there are good industrial relations, because if there are industrial disputes and action prompted by poor workforce engagement that could undermine the investment case in the UKCS.

“Workforce engagement needs to be addressed and that has been lacking in recent years.”

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